That Was the Year That Was – RBE Round up 2013

Financial markets were quick out of the blocks in 2013 and overall it has
been a pretty good year for investors, particularly those in equities.

Stock markets started strongly and remained generally high throughout the
year – the FTSE 100 started the year at just under 5,900, and only just missed
its all-time high when it hit 6,840 in May.

Overall, the index rose by 13% on
the year – a 17% return for investors when dividends are factored in.

The FTSE 250 index, which measures the performance of shares in medium-sized
companies, did even better, with a 28% return and the FTSE Small Cap index up
nearly 30%.

Junior market AIM reached a two and a half year high as the total value of
the index reached £73 billion; the index was up 18% on the year and further
bolstered by the fact that 41 companies come to the market during the year.

The FTSE All Share, which represents the majority of the UK stock market,
grew nearly 19%, which has left investors feeling flush.

Strong Equity Markets

Almost certainly as a result of the attraction of strong equity markets, in
direct contrast the twenty year bull market in bonds appears to have come to an
end with both gilt and corporate bond values down nearly 3%.

Bond prices have undoubtedly been driven down by a switch to equity markets,
but the government’s policy of quantitative easing will also have made gilts become
expensive.

Overall, the UK economy has done better than expected, growing faster than
any other developed Western nation in the third quarter of 2013.

However, the biggest investment story of the year has been the collapse in
the price of gold, which has lost around a quarter of its value since the start
of the year – predominantly because of the strength of markets and the
gathering momentum of the economic recovery.

Gold is a defensive investment - a safe haven when markets are in trouble –
and investors piled it high during the financial crisis. With economic
confidence returning, there’s been a sell-off which has triggered the fall in
bullion prices.

Gold sell-off

Gold was also sought after as an alternative currency as central banks such
as the Bank of England and the US Federal Reserve and most recently the Bank of
Japan have flooded their economies with a vast amount of new pounds, dollars
and yen.

The flood of money that has been printed around the world has delivered a
great boost to markets, but there have been jitters since the Summer caused by
fears that central banks, and in particular the US federal Reserve, will be
unable to continue with such monetary policy.

A recent wobble following the announcement by the Fed that it would be
tapering its bond purchasing programme, was followed by a rally when assurances
were given that the reduction would ‘only’ amount to $10 billion per month and
that the QE policy was set fair to see out 2014.

With good returns to be had on the home front, there has been less
temptation to seek value in emerging markets and concerns about China’s economy
has also had an dampening effect.

Strong Pound

The relative strength of the pound further weakened the returns from overseas,
and from the perspective of a British investor emerging markets fell 2% in 2013,
with individual countries performing conspicuously badly - Brazil lost 13% in
sterling terms, India 9% and Russia 3%.

A recovery in China’s stock market meant the Shanghai index ended November
near where it started the year.

The slowdown in China’s previously roaring economy meant a difficult time
for commodities markets as the world’s second largest economy consumed fewer
raw materials.

Overall, there will be some very happy investors out there, and stock
pickers that have managed to outperform the markets will be sitting pretty.

A good indicator of how an ‘average’ investor may have fared can be found in
the performance of actively managed funds which invest across a whole range of
asset classes.

Unit trust prices have risen by nearly 14% in 2014, taking the five-year
gain to 75%; a very strong performance, and one that will hopefully encourage
more people to take the plunge and join the growing number of DIY Investors
that are taking control of their savings and investments for the first time.

Yopi

Posted on
24/09/2014 06:50:22

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